A Taxing Decision

Want to save money on taxes in retirement? Give Alaska a try. It's the only state in the country without a state income or sales tax. But before you grab your parka, here's a look at other states with low tax rates.

Income tax. Seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. And two states, New Hampshire and Tennessee, tax dividend and interest income only. Other states tax as much as 9.5 percent of your income, although certain types of retirement income are shielded from income tax in some states. To find out which types of retirement income are exempt in your state, contact the state department of revenue.

Sales tax. There also five states where you can live sales tax free: Alaska, Delaware, Montana, New Hampshire, and Oregon. The rest tax between 2.9 percent and 7.25 percent of sales. Of course, you can always wait until a state sales tax holiday for purchases.

Final taxes. Alas, if you manage to successfully dodge income, sales, and property taxes, you may be hit with a death tax. Statewide estate and inheritance taxes can cut into any wealth you want to pass on. Bankrate's state tax roundup tool offers a good overview of all the state taxes you will face in retirement.